Reverse mortgages have been around since the 1960s, but it wasn’t until the late 1980s that they gained popularity. Today, reverse mortgages are a popular option for seniors who need extra income to supplement their retirement savings or pay for healthcare expenses. In this post, we’ll discuss eight things you should know about reverse mortgages.
1. What is a Reverse Mortgage?
A reverse mortgage is a loan that allows homeowners aged 62 and older to borrow against the equity in their home without having to make monthly payments. Instead of making payments, borrowers receive money from the lender based on the value of their home and age.
2. How does it work?
The amount of money available through a reverse mortgage depends on several factors including the borrower’s age, home value, interest rate, and location. Generally speaking, as long as you live in your house and maintain it properly (paying property taxes and insurance), you do not have to repay any part of the loan until you sell your house or pass away.
3. Types of Reverse Mortgages
There are three types of reverse mortgages: single-purpose reverse mortgages offered by some state and local government agencies; proprietary reverse mortgages offered by private lenders; federally-insured Home Equity Conversion Mortgages (HECMs) which are backed by HUD.
4. Eligibility
To be eligible for a HECM or other type of reverse mortgage, you must:
– Be at least 62 years old
– Own your home outright or have a low balance on your existing mortgage
– Live in the home as your primary residence
5. Costs Involved
Like with any other type of loan product there can be fees associated with getting a HECM such as origination fees paid to lenders when first taking out a HECM – these typically range from $2500-$6000 depending on where you live – along with ongoing servicing fees charged annually thereafter. Other costs that may be incurred include appraisals, title searches, and credit checks.
6. Pros of a Reverse Mortgage
Reverse mortgages can provide seniors with extra cash to supplement their retirement income without requiring monthly payments. They also offer the flexibility to receive funds in a lump sum or over time in smaller amounts.
7. Cons of a Reverse Mortgage
While reverse mortgages can be beneficial for many seniors, there are downsides to consider as well including:
– High fees associated with the loan
– Interest rates are higher than traditional mortgage loans
– The heirs of your estate may have less money when you pass away
8. Alternatives to Reverse Mortgages
If you’re considering a reverse mortgage but aren’t sure if it’s right for you, there are alternatives worth exploring such as:
– Downsizing your home: selling your current home and moving into something more affordable.
– Home equity line of credit (HELOC): borrowing against the existing equity in your home.
– Refinancing: refinancing an existing mortgage can provide access to additional cash at lower interest rates and fees.
In conclusion, whether or not a reverse mortgage is right for you will depend on several factors including age, health status, financial needs and goals etcetera – so it’s important to do thorough research before making any decisions about taking out one of these loans!